Allegedly, the US government is preparing to announce a recovery in bank regulations that will provide financial institutions with looser capital requirements.
President Trump’s government is preparing for the announcement of a reduction in the supplementary lever ratio (SLR) for the capital reserves of American banks, reports the Financial Times (FT), stating found people who are familiar with the issue.
Regulators originally implemented the current SLR rules as part of Basel III in 2014, aimed at preventing a repetition of the worldwide financial crisis of 2008-2009. But some have argued that the regulations stop the market and the financial sector.
Says Greg Baer, head of the Bank Policy Institute Lobby Group,
“Punishing banks for keeping assets with low risk such as treasuries undermines their ability to support the market liquidity in times of stress when it is most necessary … Regulators must now act instead of waiting for the next event.”
The chairman of the Federal Reserve Jerome Powell also said earlier this year that he believed that the SLR “strong” would help support the American Treasury market.
“We have to work on the structure of the Treasury market, and a part of that answer can be, and I think it will be, reducing the calibration of the supplementary lever ratio.”
But others do not share the same sentiment. Nicolas Véron, senior fellow at the Peterson Institute for International Economics, says the FT that given the current risks for American banks and the role of the dollar and the direction of the economy, now is not the right time to relax capital standards.
Under Basel III, systemically important banks (SIBs) in the United States are required to maintain an additional leverage (SLR) of 5% or more at the level of the holding and 6% at the level of the insured attitude. In the meantime, many other developed countries adhere to the minimum SLR of Basel III of 3%, although some areas of law have proposed or implement slightly higher standards, ranging from 3.5% to 4.25%
The sources of FT have not specified where precise SLR percentage regulators strive for, but lobbyists say they want to bring the requirements of America more in accordance with international standards.
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